Hovnanian Enterprises Inc (HOV) 2008 Q1 法說會逐字稿

Good morning, and thank you for joining us today for the Hovnanian Enterprises fiscal 2008 first quarter earnings conference call. By now you should have all received a copy of the earnings press release. However, if anyone is missing a copy or would like one, please contact Donna Roberts at 732-383-2200. We will send you a copy of the release, and ensure that you are on the Company's distribution list.

There will be a replay of today's call. This replay will be available after the completion of the call and run for one week. The replay can be accessed by dialing 888-286-8010, passcode 97074528. Again, the replay number is 888-286-8010, passcode 97074528. An archive of the webcast slide will be available for 12 months.

This conference is being recorded for rebroadcast, and all participants are currently in a listen-only mode. Managers will make some opening remarks about the first quarter results, and then open up the line for questions. The Company will also be webcasting a slide presentation along with the opening comments from management. The slides are available on the Investors page of the Company's website at www.KHOV.com. Those listeners who would like to follow along should log on to the website at this time.

Before we begin, I would like to remind everyone that the cautionary language about the forward-looking statements contained in the press release also applies to any comments made during this conference call, and to the information in the slide presentation.

I would like to now turn the call over to Ara Hovnanian, President and Chief Executive Officer, Hovnanian Enterprises, please go ahead.

Good morning. Thank you and thanks for joining us and thanks for participating in today's call for the first quarter results for the first quarter ended in January. Joining me from the Company are Larry Sorsby, Executive Vice President and CFO, and Kevin Hake, Senior Vice President and Treasurer, Paul Buchanan, Senior Vice President and Chief Accounting Officer, and Brad O'Connor, Vice President and Corporate Controller, and Jeff O'Keefe, Director of Investor Relations.

If you turn to Slide #1, you can see the performance in the quarter in most key metrics was off from last year's first quarter. We provide details in our press release which we issued yesterday. I am not going to over every data point, but will focus on some of the key areas. Overall, the housing market remains challenging, and we clearly don't see evidence that the market is improving yet.

Sales for the quarter were down 41% from last year's first quarter. You can see on the slide that this was largely due to a fall-off in contracts per community, as our number of open communities is down about 7% from a year ago. The pace of new contracts in the quarter was definitely weak. However, the 37% falloff in the pace of sales per community is a bit distorted due to two factors that I would like to mention.

One is that our first quarter last year, excluding our Fort Myers operations, was only off 2% from the first quarter of '06. We actually had a decent period of sales in December and January of '07, considering the normally slow season around the holidays. So our contracts are off more this year on a percentage basis, partly due to the difficult comparison with the year-ago quarter.

In addition, in this year's first quarter, we started off with a very slow contract pace in the month of November, partly as a result of our 'Deal of the Century' promotion, which captured a significant amount of sales in September, but led to a dead period of sales in October and November. Over a three-day period in September, we sold a lot of homes, but what we ultimately did was pull some amount of these sales forward from October and November, which leads to some distortion for our first quarter.

Collectively, the three-month period from September through November was a reasonable sales period in this environment, sales were down about 17% over the same period in the prior year, but there is no doubt that we cannibalized some sales contracts from buyers that would otherwise have signed into subsequent months of October or November. This can be seen on Slide 2, where we show monthly sales and the year-over-year change in monthly sales from September '07 through February '08. In December, our sales pace recovered a bit.

As a matter of fact, we almost sold as many homes in December, as we did in October and November, combined which is highly unusual given the holiday season. When we reported our fourth quarter results in December, we talked about the relative strength of our sales in the first couple of weeks in December, versus a very dry month of November. The December improvement was real, in comparison with November, but on a year to year basis, December was off 33%, from the prior year, and January cooled further, off 39% from January of '07, again these were tough comparison months due to the relatively strong months last year.

For the month of February, on Slide 3, we showed a bit of improvement with 804 net contracts, a decline of 31% from last year, but again, it is against a difficult comparison month with February of '07 showing contracts up 3% from the previous year, and that is obviously unusual in this kind of market environment. Overall, we are continuing to sell at a pace which is about 25% below last year, after adjusting for the decrease in the number of open communities.

Although our sales are down year-over-year, the pace over the past several weeks has been at our internally seasonally adjusted budget. This means that if we stay on or close to budget, we will sell enough homes over the next few months to meet or exceed our budgeted deliveries in the final two quarters of the year. This will enable us to more easily meet our operating cash flow projection of more than $100 million for fiscal '08.

Operating cash flow, as you know, includes both EBITDA and the cash we generate from inventory reduction. The latter is the result from our careful management of the replacement of lots under the homes we deliver, which we are only doing on a very limited basis. And therefore, we are confident that we will be able to meet our cash flow targets. We have a fair amount of control over cash flow by managing our inventory levels, so I will talk a little bit more about inventory reductions to date.

In '06, we began to pull back heavily in our inventory growth plans, by walking away from a significant number of lot options. The effect on our inventory investment levels can be seen on Slide #4. This was a necessary first step for us, but it took until the middle of '07, after walking away from further lot options, to reach the pivot point where the amount of lots we were taking down, became a smaller percentage of the lots we were delivering in each month and quarter, such that our inventory investment dollars and the number of owned lots began to decline.

The effect is that we are now in a position to generate cash for the full year in '08, on top of the significant cash flow of $376 million that we generated in the fourth quarter of our most recent year. We are now making progress in reducing our own lot position.

As you can see on Slide 5, at the end of the first quarter of fiscal '08, owned lots were down to 27,372. This is a 25% reduction from the peak levels of owned lots in July of '06. Further reductions in the owned lot position will lead to continued cash flow. Remember, during the growth cycle, homebuilders are big users of cash as they are adding to their lot positions, and increasing deliveries. During the trough of the cycle, cash generation is achieved by replacing lots at a much lower pace than homes are delivered.

Our option lot position also came down. We ended the quarter with only 31,729 lots under option. We terminated and walked away from land contracts totaling about 1600 lots during the quarter. Our remaining investments in option lots, option deposits, has dropped dramatically from a peak of about $466 million at the end of the second quarter in fiscal '06, to about $143 million, at the end of our recent quarter. Our total lot position is down 51% from the peak in '06.

On Slide 6, we show the geographic break-out of our owned and optioned lots. Looking at deliveries for the previous 12 months, our land position now stands at a 2-year owned land supply, and a 2.3 year supply of option lots. We expect to continue driving down our lot position. Additionally, we keep a close eye on another important component of our inventory, the number of homes that are started and unsold.

Over the past 10 years, which is shown on Slide 7, we have averaged 5.1 started, unsold homes per community. At the end of the first quarter, we are at about 4.7, which is back below 5 specs per community, after a period of about 10 quarters with higher spec levels, largely resulting from the increase in cancellations that we experienced over that period of time.

On Slide 8, you can see that the absolute number of started unsold homes at July 31 was at the lowest level in nine quarters. We had 1,898 started unsold homes, or a 3.8 month supply, based on the very low first quarter sales pace, and a 2.3 month supply based on the trailing 12-month sales pace. As a group, the large public homebuilders have been significantly reducing the number of started unsold homes.

On Slide 9, we show that for a group of 10 public homebuilders that report the data, the total number of started unsold homes over the past year has declined by 25% to 27,586 homes, from 36,538 homes. Using trailing 12-month sales for these same builders, it equates to a 2.3-month supply, similar to our 2.3-month supply. Recognizing that the public homebuilders represent a large percentage of the total housing production, and that private builders are not getting the financing for spec homes today, I am optimistic that the spec home inventory will continue to climb, and will not be the large problem in the marketplace.

I am not saying that there aren't other big issues. It is just that the amount of new spec housing is unlikely to be a big problem. We have been aggressive in discounting our started unsold homes, which is one of the reasons that we are reporting low gross margin levels.

On Slide 10, we show our dollar investment in inventories broken into two separate categories, #1, sold and unsold homes, which include homes that are in backlog, started unsold homes, and model homes; and 2, land and lots under development, which are all other owned lots that do not have a sales contract, and/or any vertical construction. As you can see, the dollars invested in our inventory came down again during the first quarter, after a substantial reduction in the fourth quarter of '07.

As we look at the remainder of the lots, the lot take-downs that are coming up during fiscal '08, as well as the dollars that we need to invest in land development, we are confident that we are going to hit our cash flow projection of more than $100 million for fiscal '08. I recognize that over $100 million is a broad range, but given that much of our cash flow is typically generated in the fourth quarter, we want to wait further into the year and the spring selling season to give more specific targets. For the fourth quarter of fiscal '07 we were significantly ahead of our previous cash flow guidance as we generated $376 million of cash flow in that quarter.

We used the cash we generated during that quarter to reduce our debt. As we stated in our year-end conference call, we anticipated increasing our bank borrowings modestly in the first half of '08, with reductions weighted toward the second half of the year, which again follows our typical seasonal pattern.

On Slide 11, you can see that typical seasonal pattern, but overlaid with the steady trend of improved cash flow in each quarter over the prior three years, moving toward positive annual cash flow which we will achieve this year. Much of this cash flow will come by way of reducing inventories, mainly by taking down significantly fewer lots than we are delivering. Today, we are proceeding very cautiously in converting option lots to owned land, and we have had great success in delaying take-downs in our renegotiations much further into the future, and we are at the point now where every land parcel must be approved by me personally before it is purchased.

We expect our total land position to continue to decline. We are steadily burning through our old land supply, and where we are taking down lots, we are replenishing the supply, with renegotiated land at prices that will reduce our total costs. Once we burn through that land, we will begin to see some margin improvements on newer lots, even without an improvement in the housing market, or higher home prices.

At this stage, we are primarily taking down lots only in the healthier markets, where the lot price will result in a good margin, and in most cases, we already have a contract for a home on that lot. We are keeping a close eye on the dollars that we are spending on land development. So far, we have mothballed a number of communities, where we determined the current performance did not justify further investment at this time. We continually review communities to determine if mothballing is appropriate.

We would prefer to avoid spending money to improve land today, and save the raw land until such times as the markets improve, and we can generate higher returns. We continue to take steps to reduce our construction costs in overheads. First, we have continued to negotiate for lower labor costs with our subcontractors. These negotiations have resulted in sizable reductions, which buffer but have not been able to offset the significant net price decreases, related to incentives and base price reductions.

Secondly, we have been proactive in renegotiating our national contracts. Within the last six months, we have renegotiated contracts that will result in several million dollars of incremental savings in fiscal '08, and we expect to continue to reduce costs for materials, as we renew additional contracts going forward.

The final component of costs that I will talk about is overheads. We estimate that most of our SG&A costs are variable costs, at least over a longer period of one to two years. As the business is contracting, we can make significant adjustments to our total SG&A, in order to match it to current demand for homes. While we haven't exited any markets, we have been consolidating our operations within a number of our markets, to operate more efficiently at a much smaller scale.

An example of this, in southern California, we are consolidating our coastal and our inland operations. In the Northeast, we are combining our eastern Pennsylvania and south central New Jersey operations. And while there is some ability to reduce costs in office space and other overheads, the driver for reducing SG&A is largely related to reducing staffing levels. These are not enjoyable decisions to make, but they are necessary to manage through the current downturn. Since our peak in July of '06, our staffing levels are down 47% companywide, as of the end of February.

I will now turn it over to Larry Sorsby to discuss some of the charges we took in the first quarter, and our revised credit facility, as well as our mortgage operations in greater detail.

Thank you, Ara. I will start by talking about the recent amendment to our credit facility. As we announced in the press release, we received approval from our bank group, and closed an amendment to our revolving credit facility last week. The amendment included the following revisions to the facility.

First, we reduced the commitment of the facility to $900 million. As our inventories and debt levels are now shrinking, and are projected to continue to decline this year, we are confident that a $900 million committed facility provides us with ample liquidity. The outstandings on the revolving credit facility are now secured with first lien mortgages on residential properties, with a 65% advance rate against appraised value.

To the extent that we have cash balances, these can also collateralize the amounts as outstanding, and letters of credit. This structure allows us the flexibility to fully utilize our $900 million credit facility. Note that not all of our assets are pledged, only the amount necessary to support the outstanding and letters of credit. Once we complete our initial securitization revolver, we expect to have over $1 billion of book value of assets that are not provided as collateral for our amended credit facility.

Three, we increased the maximum leverage threshold significantly, and reset the minimum tangible net worth threshold to a very low level, that we believe will give us adequate operating room under these financial covenants. In addition, the maximum leverage threshold is not a default so long as we reduce the facility amount further, and abide by a lower advance rate on the borrowings base.

Four, we continue to have no interest coverage tests that could trigger a default. We do have a coverage test based on operating cash flow, but it is also not a default trigger, as long as we have adequate availability under our borrowing base. Five, the maturity remains May of 2011.

Although we would have preferred not to provide mortgage collateral, we felt it was a prudent trade-off for improved flexibility under the covenants, particularly with the limited amount of such mortgage collateral required, and in the ability to reduce that collateral, as we reduce our usage under the facility over time. We have a strong long-standing relationship with many of the banks on our revolving credit facility, and we are satisfied with the agreement we have reached.

Now I will give some further detail on the land-related charges that we took in the first quarter. We took charges of the $16.3 million related to land option walk-aways, on 1,600 lots in the first quarter as shown on Slide 12. These charges represent the amount invested in these options, including option deposits and pre-development costs.

In our more challenging operations, our land option positions have come down dramatically. In Florida, California, Minnesota, Arizona, and Chicago, we only have slightly more than 4,000 lots under option remaining, out of a total option position company-wide of about 32,000 lots. For those options still in place today, in most cases, the price, terms, or both, have been renegotiated, so that they continue to make economic sense going forward, even in this tough housing environment.

The majority of our remaining lots under option are in Texas, North Carolina, Washington, D.C., and the Northeast. About 24,000 total lots in these markets, or 75% of the total of all of our options. Given the impacts of the downturn, the markets in Texas and North Carolina performed relatively well, and certainly better than California, Florida, and the Mid-West. Although conditions are obviously slow, sales and pricing have also held up better in the DC and Northeast markets.

The next category of pre-tax charges relates to impairments. As shown on the slides, we incurred impairment charges of $73.8 million, related to land and communities that we owned in the first quarter. We impaired a total of 28 communities in the first quarter of 2008, 10 of those had previously been impaired.

That leaves us with the last major area of charges for the quarter, which are related to taxes and the FAS-109 deferred tax asset valuation allowance. Normally, when we record losses, we would be recognizing a tax benefit. Many of those losses, primarily related to impairments of land, are not eligible for current tax refund, until we actually sell the inventory, but the tax benefits can be carried forward for 20 years. We concluded that we should book an additional $21 million after-tax noncash deferred tax asset valuation allowance during the first quarter. Let me reiterate what I said last quarter.

The FAS109 deferred tax asset valuation allowance was for GAAP purposes only. For tax purposes, our tax assets may be carried forward for 20 years, and frankly, we fully expect to utilize those tax loss carry-forwards, as we generate profits in the future. Although financial accounting requirements limit the Company's ability to consider future profits in determining the need for a valuation allowance, the Company is confident that it will generate sufficient profits in the future to ultimately fully utilize its deferred fax assets.

As we generate future profits, the valuation allowance reserve will reverse, such that we will not have to record any federal taxes on our earnings. Once we can determine that we are no longer in, or expect to no longer be in a three-year cumulative loss position, the entire remaining valuation allowance will be reversed in a single quarter. While our deferred tax asset valuation allowance charge was noncash in nature, it did affect our balance sheet and our net worth by $21 million during the quarter, and $237 million to date.

After our walk-aways, impairments, and an additional FAS109 deferred tax asset valuation allowance, we ended the quarter with approximately $1.2 billion in shareholder's equity, or $16.79 per common share. Our share price is still trading at about 50% of book value, even after all of the charges I just described.

Additionally our net recourse debt to capital at January 31, 2008, was 64.6%. Prior to the effects of the deferred tax asset valuation allowance, our net debt to cap ratio was 60.3%. It is important to look at this ratio both before and after the application of FAS-109, when comparing publicly-traded homebuilders because of the difference in application of FAS-109, depending on which outside auditors the homebuilder uses.

Now let me touch on the mortgage markets and our mortgage financing operation. If you will turn to Slide 13, our recent data indicates that the average credit quality of our mortgage customers remains higher than national averages. The average FICO score for the first quarter fiscal '08 was 729, higher than it was in 2007. Of course, some of this improvement in our FICO scores is likely linked to tighter underwriting criteria, and the fall-off of subprime and Alt-A originations this year. Similar to the national pattern, our buyers also continued to use more fixed rate product, as the percentage of buyers using adjustable rate mortgages originated through our mortgage company declined to only 6% in the first quarter.

Turning to slide 14, we show a breakout of all of the various loan types originated by our mortgage company during the first quarter of fiscal '08, compared to all of fiscal '07. Keep in mind that we sell all of our loans on a whole-loan basis. We identify the buyer of the loans prior to closing on an individual loan.

Our conventional prime loan business, defined as conventional loan with full documentation of income and assets, with either conforming or nonconforming loan limits has increased 52.3% during fiscal '07, to 60.3% in the first quarter of fiscal '08. FHA and VA loans also increased to 13.5% during the first quarter of '08, from 8.1% of total originations in fiscal '07. Our level of subprime business originated through our mortgage companies continued to contract, and is nearly nonexistent.

The amount of subprime mortgages generated by our mortgage company declined from 3.7% during fiscal '07, to less than 1% of our total loan volume during the first quarter of '08. The volume of Alt-A loans has also decreased to 19.7% in the first quarter of '08, compared to 27.3% of our volume in all of fiscal '07.

To reiterate what we told you on our last call, the industry is going back to Mortgage Lending 101 basics. The market has just returned to sound mortgage credit underwriting criteria principals. Buyers who have a decent credit history, can verify their job, make a modest down payment will have no issues obtaining approval for Conventional, Jumbo, FHA or VA loans.

Our pre-tax earnings from financial services was $3.1 million in the first quarter of fiscal '08, compared with $8.5 million in the prior year's first quarter. The decrease is largely related to the decline in originations from our homebuilding operations, as sales and closing volumes have declined. Now I will turn it back to the performance of our homebuilding operations in the first quarter.

Our contract backlog at January 31, 2008, excluding unconsolidated joint ventures was 3,845 homes, with a dollar value of $1.3 billion. On Slide 15, we show the backlog at January 31, for the prior five years, and we provide a breakout of the portion of backlog associated with our Fort Myers/Cape Coral operations. As anticipated in the first quarter, we recorded the closing of 1,345 homes in the Fort Myers market, on which we earned only a 2% gross margin, due to the unique nature of these closings.

Our operations in this market are very different from most of the Company's divisions. Most of our home buyers in this market first buy a lot from us, and then use construction financing from a third party lender to build a home. We typically receive between 75% and 90% of the purchase price from our Fort Myers customers, via their construction loans.

However, given that the market has deteriorated so significantly in Fort Myers, many buyers have chosen not to convert to permanent financing, where we would normally receive the balance of our sales price. This is what occurred for virtually all of the 1,345 closings in Fort Myers during our first quarter. As a result, at the end of our first quarter fiscal '08, only 306 homes amounting to $84 million of backlog are associated with the Company's Fort Myers/Cape Coral operations, down from 1,652 homes in our Fort Myers backlog at October 31st, 2007.

Notwithstanding the effects of Fort Myers, the incentives and price reductions that we have instituted across the country have kept our margins below normal levels for the past several quarters. Reflecting the continued weakening of the housing market, and our efforts to reduce started and unsold homes, our homebuilding gross margins excluding our Fort Myers/Cape Coral operations would have been 8.6% in the first quarter of 2008, compared with 11.3% for the fourth quarter of 2007.

In order for any homebuilder to get through a downturn, first you must build through your owned land position which is the land you own at higher prices and replace it with lower-priced land at today's market values. Once that is accomplished, it will allow us, as well as other homebuilders to get back to a more normalized gross margin. For us, that is in the range of 20 to 21%.

Now I will shift to talking about joint ventures. Our investment in unconsolidated joint ventures declined to $162 million, as of January 31st, 2008, compared to $176 million at the end of last year. Turning to Slide 16, we have continued to maintain modest leverage in our joint ventures, and have financed them solely on a nonrecourse basis.

At quarter end, our debt to cap of all of our joint ventures in the aggregate was 46%. We do not have any debt arrangements at any of our joint ventures, that will require us to provide additional equity capital to joint ventures in the future, and we don't anticipate a need for cash, to voluntarily support our joint ventures. In fact, we expect to generate cash from our joint ventures, as a number of them are in the wind-down stage of delivering homes, without significant additional development dollars needed. We report a significant amount of details of the balance sheet and profits of our unconsolidated joint ventures in our 10-Qs and 10-Ks, so you can look there for more details.

Now I will turn it back to Ara for some closing comments.

Thanks, Larry. The Federal Reserve, Congress, Fannie Mae and Freddie Mac have been doing their part to give a shot of confidence to consumers. History has shown that over time, the Fed seems to be able to either slow down or stimulate the economy with its interventions, it is not always apparent in a quarter or two, but it ultimately comes to being. The Fed is clearly more interested in stimulating the economy today.

The recent decline in mortgage rates will undoubtedly help, since that impacts affordability directly. About 83% of the mortgage applications around the country in the most recent month were based on fixed rate mortgages, and 30-year fixed rate mortgages have declined about another 6 basis points over the last 12 months, to an average of 5.98% last week. The market is too challenging right now to make accurate forecasts for fiscal '08.

Fiscal '08 will clearly be another difficult year. But we have already taken significant steps to position ourselves and reduce our overheads, to be better prepared for an environment with lower sales and prices. We are experienced operators, we have been around as a Company for almost 50 years, and we have been through many downturns. We were much smaller in those past downturns than we are now. We were less diversified with far fewer products and price points and in far fewer geographies. We were also more highly leveraged in the past, than we are operating today.

We have successfully managed through these difficult times in the past, and we are taking the steps now that we know are necessary to come through this downturn, and ensure that we will be in the best possible position when the inevitable recovery takes place. Long-term housing demand is not going away. In fact, it is projected to go up.

Most of our competition on the other hand, primarily the smaller and medium-sized private builders, may go away, as has occurred with every major housing downturn, it will become a really solid housing environment soon, with pent-up demand, and less competition, for those that can take advantage of the times, and we absolutely plan on doing that, as we have after every housing cycle before. I recognize that it is difficult to see a bright housing picture, as we are in the middle of the current quagmire.

You need to get above the trees to see the forest, the herd is running from housing, it is precisely the time to be in and recognize all of the wonderful opportunities that are cleverly disguised as problems.

That concludes my comments, and I will be happy to open up the floor for questions.

The Company will now answer questions. So that everyone has an opportunity to ask a question, participants will be limited to one question and a follow-up after which they will have to get back in the queue to ask another question. At this time, we will open the call to questions. (OPERATOR INSTRUCTIONS)

And please hold while we compile a list of questions. Our first question comes from the line of Michael Rehaut from JPMorgan. Please proceed.

Hi, good morning.

Good morning.

The first question, just on the absorption rate, Ara, you had mentioned that the comp was sort of obscured a bit by Fort Myers. But still net/net, it looks like with the 3.7 absorption for the quarter, that would be somewhat below what I would assume you would be targeting. And so I wanted to know, what do you feel is the rate that you want to get it up to, and what do you think you need to do to get it to a better pace?

Well, Mike, first of all, remember, obviously, our first quarter takes place over Thanksgiving of November, it takes place over Christmas, and all the other holidays and New Years of December, and of course traditionally, a very slow period right after that, in January. And it is the slowest season normally, at any time of the marketplace.

What also made it a little difficult to compare as we talked about, were the tougher comparisons, because we actually had an unusually good season the prior year. Plus as I mentioned also, we had the fall-out after the 'Deal of the Century' which happened to be held in the middle of September, so clearly, today, we recognize that we cannibalized some sales that were coming up after that. We feel pretty good about the current sales pace right now that we have been experiencing, and we think we are well on the way to meet our projections.

Just to understand, I mean you are at 3.7 in the first quarter, of this year, and a year ago, were you at 5.9. And a year ago before that, you were at 9.0. I mean where do you want to see that settle out? And maybe you can just talk about in general.

We don't give a specific target, Mike, in sales. And again, we recognized it was a very low pace for the first quarter. Obviously, if you just look at the month of February alone, it was dramatically higher, at over 800 contracts. We are pleased with that pace. We think we have taken and implemented the steps we need at this time in the marketplace, to get that right balance of pace and price.

Clearly, we are at a low point of absorption into this downturn, and as the market firms up, and improves, we will get back to a more traditional absorption rate. But there is not a whole lot any individual builder can do to get it back to the levels we really want to see it. We just have to weather the storm.

Again, Mike, remember, in September, we had an unusually high sales pace, with our Deal of the Century, and we clearly had an aftermath effect in our first quarter, driving down that sales pace, as we pulled buyers from the future, we also had our normal cancellations from that large number of sales, so all of that affected it. But again, as you could see, February was off it a pretty good pace with a monthly pace of 800 homes.

Okay. Second question, just on the amendments to the revolver, Larry, I was wondering if you could give a little bit more specificity, in terms of how much in terms of a dollar amount was put up in terms of the secured portion. I mean what the revolver balance is today, and also what the new leverage requirements are?

Well, Mike, this is Kevin. We gave the balance, I think as to what is outstanding, but we have to secure, as we said 65% advance rate, we have to put up enough mortgage collateral or cash collateral, to support the amount outstanding at a 65% advance rate.

I'm sorry, for the leverage, I meant just the overall leverage covenant for the revolver in general?

Yes, those are a little complicated to answer in a short question, similar to what others have done in their agreements, and we had in the past, there are ways that that ratio can increase or decrease based on other things.

So rather than trying to go into the complexities of it, I think as we said, we were able to raise the peak level that we are allowed to have, and if we exceed that level, it is still not a default, as long as we lowered our advance rate somewhat under our borrowing base, and reduced the total commitment amount. So I don't have any specific answer otherwise on terms of the leverage.

I think we have a lot of runway in front of us. It provided us a lot of flexibility. We are not concerned about having to, go back to the banks on the leverage test any time in the near term future, so we feel pretty good about it, Mike.

Thanks. And just one last question on that, the new minimum tangible net worth requirement?

I think a general kind of comment in terms of we are not going to provide the absolute specifics. There is significant reduction from what the target or the trigger was previously, and that too, isn't an automatic default. We can do things to lower it even further, and again, we think we have adequate runway in front of us. And we are pleased with where we are.

Okay. Thank you.

Once again, ladies and gentlemen, please limit your questions to one question and a follow-up. Your next question comes from the line of Carl Reichardt from Wachovia Securities. Please proceed.

Hi, guys. I only have one question left now. Can you tell me, of the sales of the century orders back in September through now, how many roughly, what percentage of those have closed by now, and what kind of margins have you run on those?

About half of them have closed. I am not sure we have margin data broken out for those so I am not able to answer that for you, Carl.

And Larry, so half of them are closed, would you expect the next half to close this coming quarter or will they be more spread out through the rest of the fiscal year?

Probably a majority of them would close over certainly over the next two quarters, probably all of them, the majority of them and my suspicion, I don't track it quite that way, will be this quarter.

Our canned rate has been slightly less than our typical amount. We have been running about 29%. So not a bad can rate.

On the sale of the century, the 29%?

Yes, the Deal of the Century, yes.

Thanks, guys. Appreciate it.

Your next question comes from the line of Ivy Zelman from Zelman and Associates. Please proceed.

Good afternoon, guys. Realizing you guys are more in an enviable position than the private builders, and you have the ability to mothball assets, I think if you could help us understand with your today owned I think you said 27,000 lots, what percent of those have been impaired, and I am sorry, mothballed, I am sorry, and how much of those mothballed how much of those have you impaired, and then I guess strategically, are you looking as some other builders are out there with packages in the marketplace trying to sell land on a bulk basis, would you consider doing that?

Or are you looking at the mothballing as sort of are you a black or a white, or is there something in the middle as many builders right now are contemplating which direction they are going to go in, and we have seen some changes of positioning recently.

Hi, Ivy. Well, that is a big question, with a lot of different components to it.

You said one question. I had to sneak it in. (laughter)

Like a run-on sentence.

First, at this point, we only have maybe a dozen mothballed communities, and you know, it can be a little misleading, because we might have a current section that we are actively selling the developed lots, but we might have decided to mothball the balance, and not spend the dollars on land development, on the remaining ones, because we are just not recovering enough to make it meaningful, and we like that parcel of land and we would rather hold on to it when it is at it's low cost basis, without improvements in place for the market to recover.

The other question had to do with bulk land sales --

Ara, before you go there, can you just comment on the dozen or so you have mothballed, whether you impaired those before you have mothballed those?

Yes, many of them have been, I think probably perhaps most of them have been. I don't have that at the tip of my fingertips. But we clearly feel that the value, I mean we looked very carefully at the valuations of everything.

Ivy, we will get back to you on specifics, but the vast majority of them have been impaired, and we just don't have it at our fingertips.

Okay.

So going back to your -- the second sneakily disguised question, with bulk sales, we like all builders are kind of feeling around in the marketplace as to what opportunities are out there. We had considered and had looked at doing a larger sale. I would say that is not something that is exciting to us right now.

However, we are extremely interested in looking at a joint venture partner that would provide us with the capital we would like to explore, and use to exploit the bottom of the marketplace that we see coming up this year, with some good land opportunities. Some have asked that we would seed that some amount of our assets, a small seed amount, just to get a relationship going. So we are considering that.

In general, I am pleased to report there is a lot of interest by financial institutions to be a financial partner with us on new acquisitions. And that is important, because we are interested in de-levering, not using our capital at this stage in the marketplace, to take advantage of the market opportunities that we know are there. In the past, we have done that after the cycles, and we have leveraged ourselves a little more, and at this stage, we think it is more prudent to be even more cautious, preserve all of our capital, and bring on a financial institution as a joint venture partner for that.

That is very smart, I think. Do you have any thoughts, just Ara, on land prices relative to the Morgan Stanley/Lennar deal, what those institutions, what the bids are, are they sort of being aggressive coming in below where Lennar's deal traded, and therefore it is tougher to see doing that? Any sense on just --?

There is a very wide range, first of all, one has to dig through and see if it is a developed lot or an undeveloped lot, raw land typically would go at a much greater discount. I haven't reviewed the Lennar transaction in detail, but my understanding is a substantial amount of that is raw land. And that typically yields the highest discount in the marketplace.

The developed lots are typically less of a discount. It also just depends on the nature of the acquisition. Lennar is a publicly I mentioned, has a lot of tax advantages to doing a sale. So frankly, some of their worst land made most sense in the transaction, getting the lowest valuations with the biggest loss that gave them the biggest amount of tax refund. I am sure Lennar has many, many parcels.

By the way I don't think that is a good surrogate for the value of their land in general in their portfolio, given that they were driving to get a year-end transaction that would give them some great tax refunds, it wouldn't make sense to get the middle of the road land parcels, or the good land parcels in that scenario. So I am glad you asked that question.

Because a lot of people are just looking out there and saying, looking at that transaction, and repeating this 40% number all the time. And the fact is there is just a huge spread, and there are some parcels that warrant that kind of discount. And many others, if they are developed, would warrant less of a discount. And then there are other good parcels that require much less, or no discount. It is really all over the place.

Thanks, guys. Appreciate it.

Your next question comes from the line of David Goldberg from UBS. Please proceed.

This is [Susan McCleary] for David. Going a little further on land, can you give us a sense of the land that you have, what stages of development the different lots are in, and perhaps break that down by divesting something for us?

That is a good question that frankly I think it is one that has been asked enough, that it would probably be a good idea for our company and our peers to start tracking it. We do not track it that way now.

It is a little complex, because you can have partial development, and so how do you count that if a phase, we have got a phase that is completely developed, and another phase that is 37% developed with the streets in, another one where maybe only the grading is done. So it is a little complicated, but I think we may endeavor to try and tackle that over the next quarter or two. I have got to talk to our people. They haven't heard this idea. But it is something that might make sense.

We gave pretty good data on where those option lots are remaining, and you know, they give you a pretty good sense that in Texas we primarily buy finished lots, so you can apply some general rules, as opposed to in DC and Northeast a little bit more of a blend than some of the maybe less developed and more of a mix.

Sure. And you can give us any sense of what you expect to spend on land development for the year?

No again, we don't go into that level of detail. We will try -- go ahead, Larry.

We look at inventory change community by community. So we know community by community exactly what we are doing in the aggregate, between taking down lots and spending on land development, as well as WIP, Work In Progress, but we don't break it down in its components and track it on a consolidated basis to where we can tell you how much we are going to spend on land development versus other things.

What I will say is in general, our land development spend is down dramatically. We do have a sufficient number of developed lots ahead of us in many of the markets. So there is just not a lot of new land development going on.

Okay. Thank you.

Your next question comes from the line of Larry Taylor from Credit Suisse. Please proceed.

Good morning. And thank you. I wondered if you could compare pricing in February to where it was last fall? In other words, what the change is both compared to where you were in the Deal of the Century and otherwise?

I would say in general, pricing is better than it was at Deal of the Century. Remember, Deal of the Century we lowered prices, we raised them afterwards, in the months of October and November, we are down in February from that amount, but typically we are still above the pricing that was in place at the Deal of the Century.

And the order of magnitude of the price decrements in the post-Deal of the Century level?

I can't give you a good specific number on that.

Okay. A separate question. Can you look at what is going on in Washington and the potential programs to sort of stimulate the housing industry, and I wonder if you could perhaps tell us one or two of the programs that you think would be most beneficial to the industry?

Well, first, as you probably know, Larry, the higher Fannie Mae and Freddie Mac lending limits was passed. That has actually been implemented now. So starting just from a few days ago, you could actually get larger loans without going to the typical jumbo market. That is helpful. That is not a huge part of our business. But it is a part in some of our markets.

The net operating loss carry-back is one that is important to the builders. I think there is a reasonable opportunity for that. And clearly, would provide an additional source of cash flow for all homebuilders in the future, ourselves included. And finally, the other one that is perhaps the most important for the consumers, is the opportunity for a tax credit for home purchases, some are proposing it for only first-time homebuyers, and others are proposing a broader appeal.

If you go back to 1975, there was a small tax credit that was in place, I think about up to $2,000 per consumer for a home purchase at that time, which is maybe equivalent to about $10,000 today, which is around the kind of levels that have been proposed. And I mention it because it was a short-term stimulus, and it worked from '75 to '76, I think housing starts went up 70% in one year, coming out of the trough of the '75 housing correction. So it is a program that definitely can help.

And Larry, we need something to offset all of the negative publicity, press, media hype about housing, and a tax credit would be just the thing that perhaps would start the ball rolling in the right direction again psychologically for homebuyers.

I will add that the one advantageous position we have in this downturn as an industry compared to others, is that 30-year fixed rate mortgages have been very, very low, relative to most downturns. And the '75 period I was talking about, we were about 10%. In '81, we were at 18%, which is just amazing to think about. In '91 again we were over 10%.

So to be in an environment here where we have a 30-year rate with at this point about 5.98%, is very, very helpful. Hopefully the Fed will lower short-term rates. It doesn't affect 30-year rates very directly, but it can affect adjustable rates. But more than that, hopefully it will also give a good psychological and consumer confidence boost, which the market desperately needs.

The good things that need to happen are happening. Homebuilders are cutting back their inventories significantly. It is interesting, when you look at that inventory, 27,000 speculative homes at some stage of construction, those aren't even finished homes generally, that is not a lot of homes among the public homebuilders, who are a very significant portion of the overall country's production. So that is coming down.

Housing starts in general are coming down dramatically. We are down to the trough levels of 1 million housing starts that we have seen over the last three downturns. '75, '81, and '91, all hit a trough of about a million. That is right around where we are now.

That's important, because that sharp cutback on new production helps burn off the excess inventory that is in the marketplace. I think that is starting to happen now. And we are seeing inventories reduced. Obviously, if we could get the additional support from Congress, and get some of these additional housing stimulus bills passed, it would only help enhance and speed up a recovery.

Thank you very much.

Your next question comes from the line of Megan McGrath from Lehman Brothers. Please proceed.

Hi. Thanks. As a quick follow-up to the last question, in light of the Fed actions today to put more liquidity into the system, any sense of your cancellation rate, how many of those, or what portion of those are because the buyer couldn't obtain a mortgage, or their buyer's buyer couldn't obtain a mortgage?

I don't think necessarily adding liquidity to the system is going to solve that. What we are seeing is we have cancellations due to mortgages, is still people that under the new underwriting criteria, just don't qualify. They are looking for 100% financing. They are looking to get a loan when they really have poor credit. Or they're not willing or capable of verifying a job.

So even though, certainly, I don't know the exact percentage of our cancellation rate at 38%, but not being able to qualify for a mortgage certainly, it is a decent size, a decent percentage of that. I just don't know off the top of my head what that number is. I don't think liquidity in the system is going to solve that. I think those are people who are just going to have to fix their credit, save for a down payment, and have a job, before they are going to be able to get a mortgage going forward.

And by the way, as a reminder, we have discussed this on prior calls, those kinds of buyers never had mortgage opportunities in the past cycles anyway. In '75, '81, '91, the market recovered, and we didn't even have the Alt-A opportunities that we have today.

So even with tighter credit standards today, mortgages are actually more available than they were in the challenging periods of the past.

Great. Thanks. And just a quick follow-up on the write-downs. Any sense, of the $74 million in inventory impairment, do you have the dollar amount of that inventory either pre- or post-impairment?

We will look it up, and answer that question. We will move on to the next question, but before we get off the call, we think we can answer that one.

Great. Thank you.

The next question comes from the line of Susan Berliner from Bear Stearns. Please proceed.

Hi, good morning. Just two questions, I guess, one is did you see you had full availability on the bank line after you took out the outstandings and the LC?

Yes.

So is that an increase, so it is about $260 million? Or can you give us the LC amount?

It is in the 10-Q when we file it. It has come down from what it was at the end of the year. So we had $325 million outstanding on the revolver. Call it roughly 269 million of LC.

Great. So availability did improve from last quarter then? And then could you also provide what you spent, I guess, on cash flow this quarter?

I am not sure I understand the question.

Used in cash flow, what was the cash flow usage this past quarter?

Hold on a second.

The cash flow number for the quarter, negative 55

negative 55 net of cash on the balance sheet. We used 55 --

Cash flow from operations was a negative $55 million.

Perfect. Thank you.

What else are you asking for, Sue?

That is great. Perfect.

I have the other question about the pre-impairment value. It was about $319 million. The impairment was about 23% of that value.

And recognize some of those assets, the impairment was the second time we took an impairment, so from our original cost, the total impairments have been even more.

Your next question comes from the line of Robert Manowitz from UBS. Please proceed.

I guess he is not there. Do you want to go to the next question?

I'm sorry?

Oh, there you are?

We couldn't hear you.

We couldn't hear Robert's question.

Okay. Well I will repeat it then. Can you hear me now?

Yes. Although it was easier to answer the question the first time around. But go ahead. (laughter)

Well, I will keep the hurdle low.

Okay.

As a follow-up to the question that was just asked about availability, if I could just get a better understanding on the mechanics of that availability. I am assuming that you are below the 2 times coverage ratio under the debt and current test in the indentures?

Correct.

So are we now limited to the basket under the 12 and the 8.875 of 12, and if we are, have we used any of that basket through the first quarter?

We didn't use any of the basket. The most restrictive basket in our indentures is 440, plus a miscellaneous basket of [34.70], and that basket gets increased as we pay off certain of our older public debt, and we did not use any of that basket as of the end of the first quarter.

Great. Thank you very much.

Once again, ladies and gentlemen, (OPERATOR INSTRUCTIONS) There was a slight glitch in the queue. Your next question comes from line of Rashid Dahod, Argus. Please proceed.

We are not hearing it again.

Operator?

We are not hearing a question.

Sir, you may proceed.

Hello?

Yes.

Can you hear me?

Yes, yes.

Okay. Sorry. You had mentioned in your comments that you had approximately 4.5 or 4.7 spec homes per community. Was wondering, what is that number for some of your more challenged markets, like say California, Florida and Nevada?

We are not in Nevada, so I can answer that one. Zero.

Or Arizona, sorry.

I don't think I have that number right in front of me, but I think we have controlled it pretty much everywhere, and where we have had higher cancellation rates, one of the first things they tried to do, if they have an unexpected cancellation home, where we have started, is to immediately try to market it and move it first. So I don't think we have it bunched up too terribly anywhere.

You think that number could be close to your average?

I think pretty much, yes.

Okay. And then just as a follow-up, regarding the Deal of the Century and the resulting cannibalization that you had mentioned in certain markets, I guess just as an overall, do you view Deal of Che century as a success? And do you think that it is something that you, a promotion of this nature that you you may run again?

Well, I would say it was successful in that we stimulated sales, and achieved what we were hoping to achieve at the time. But I would say when net/net, when you take into account that we achieved a lower sales afterwards, it really neutralizes the benefit. So I wouldn't say it was a failure by any stretch.

Nor would I say we are extremely motivated to do it again. It is conceivable that we could achieve the same sales pace over the longer term without the hoopla. It is something we are debating internally ourselves right now. But there is nothing imminent at this moment.

Okay. In terms of pricing for Deal of the Century, in markets where it was a success, following the deal, does that new price essentially become the new ceiling?

Does the new price become the new ceiling?

No, we raised --

As far as if it is, I am sorry. If is a -- sorry. Continue.

Right after the Deal of the Century, we raised prices, in most cases, right back to where it was before. In some cases, to a very close level to what it was before.

Okay. I guess my question was, when you dropped the price following the Deal of the Century, how does that, how successful were you in raising the price?

We did it. But clearly our sales were slower for a period of time, a couple of months. But eventually sales picked back up again in December, but it took a period of time.

But I am not sure if that was directly related to price, or the fact that, any buyer at our communities that was considering buying, bought it right then and there in September, so they might have normally, if we hadn't run the sale, come back to the sales office three or for more times, and maybe bought in October, maybe in November, but they bought it in September, so they were out of the market. So it is hard to really gauge what the effect is.

Okay. Thank you for your time.

Your next question comes from the line of Joel Locker from FBN Securities. Sir, you may proceed.

Yes, just I guess the impairment reversals in the first quarter, how many were there? And do you have a breakdown of whether they were land or housing, or what line item they came through?

The total reversals is 55 million, and about 11 million was on land sales.

11 million, and then the rest housing. And just a follow-up question. What are your gross margins or roundabout figure for the West region, for the West region on closings in the first quarter?

They weren't very good. They were lower than our average, and I don't have it right in front of me, but they were low single digits.

That is I guess with the owned lots out there, it kind of surprised me the impairments weren't a little more, based on the over 7,000 lots owned. Did you run an impairment test for all 7,700 of the lots, or just each quarter?

We have been doing impairments pretty regularly, and California has definitely gotten its share over the past 18 months.

All right. Thanks a lot.

Your next question comes from the line of Alex Barron from Agency Trading Group. Please proceed.

Hi, guys. I guess I am still a little confused as to why the cash flow was negative this quarter, and hoping you can help me walk through what happened, because I thought most builders are generating cash, and so on, and I am just trying to understand why you guys weren't able to do that this quarter?

Well, traditionally, our first few, if you go back 20 years, our early quarters are our absolute worst. Seasonally, it is the toughest, because we have the lowest deliveries and also sales in our first quarter. Remember, it is a very tough time of the year.

The other part of it is, Fort Myers, really those closings did not have any incremental cash for us, as Larry described in his part. It is important to note though, compared I think we are definitely on the positive track. If you remember on one of our slides, where we talk about cash flow per quarter, you can see that over the last couple of years, the first couple of quarters, we have been significantly negative. A couple of hundred million dollars, so to only have a minor negative in the first quarter, I think it is a pretty positive trend.

And Alex, I think the other thing is, we didn't tell that you that we were going to be a user of cash in the first couple of quarters of the year, and generate positive cash in the second half of the year, so this is something that we anticipated for seasonal factors, and our own kind of projections, and have told the market on our last conference call. So maybe you missed it.

As with last year, cash flow is definitely weighted towards the latter part of the year, versus the earlier part. But we expect each and every quarter will absolutely yield better results than last year.

Okay.

As we did with this first quarter. The exact number, just to refresh your memory, in '06, the first quarter we were negative 372. In '07, we were negative 271. This most recent quarter, we are only minus 55 million. So we are definitely on a positive trend. And again, we anticipate improving on last year's results for the second quarter, third, as well as the whole year.

Okay. And now, as far as the amount of debt that you guys increased on the line of credit, where would you expect that to be I guess by year-end?

Well, we have given guidance for the full year, $100 million of cash flow. So there can be some other changes, but as a general rule, that is going to reduce debt.

Again, our guidance is in excess of 100 million. We will try to give you a little more fine-tuned picture of that a little later in the year, as we get through the spring selling season.

Okay. Thanks a lot.

Your next question comes from the line of Lee Brading from Wachovia. Please proceed.

Hi, guys. Thanks for taking my question. Can you hear me?

Yes.

On the community count, this quarter, we saw it drop a little over 6%. Can you give us any idea of looking forward to '08, if we should see continued declines, or some flatness here?

We don't have an exact number but I would expect continued declines.

Okay. Kind of like in this range of maybe 5%.

I don't think we have a projection, Lee, but I think it is a safe bet that sales continue to tweak downward.

Okay. And then on the gross margin, not looking for any specific guidance, obviously you won't be able to give it but from a directional standpoint, excluding Fort Myers, you finished at about, what 8.6, I think you said earlier, Larry, and the goal here is long-term, 20, 21%, but in light of the environment, and so forth, looking over the next couple of quarters, should we expect continued kind of difficulty on a gross margin here, and hope to trend up by the end of the year?

Well, we are definitely not going to hit the 20% target this year.

I don't want to give you guidance, but if I was sitting in your shoes, the only data you can use is what we had in our first quarter net of kind of Fort Myers, and just build your model.

So you expect at least flatness, and hopefully bring it up a little bit toward the end of the year?

If your crystal ball can accurately predict housing prices --

You call us after the call and tell us.

Sounds good. Thanks, guys.

Thanks.

Your next question comes from the line of Vicki Bryan, Gimme Credit. Please proceed.

Yes, good morning.

Good morning.

I had wanted to have a little bit more detail if I could on the credit agreement. I missed that number, I didn't think I got it correctly. Did you say you had 269 million in letters of credit outstanding right now?

Yes, that is what we said. January 31.

That was as of January 31.

Right. Okay. And then the balance, does that mean that you have offered security for the 325 drawn, plus the 269 on letters of credit?

Yes.

And then the balance remaining under 900 million minus both of those figures, would be what you have available, you could draw today?

Correct.

How much you can secure in assets without getting in the way of your bond indenture covenant?

100% of our assets can provide security, and there is nothing in our indentures that prohibit that.

Good. And what kind of cushion do you have under the tangible net worth covenant today?

I'm sorry?

The cushion on your tangible net worth covenant?

We didn't give a number, but it is a sufficient cushion we are comfortable with.

Sufficient. Got it.

With the level of changes, based on meeting other provisions, so it is just a little complicated to --

Is that the most restrictive still, the tangible net worth, relative to the other two? The most restricted covenant.

I am not going to answer something that is more restrictive or less restrictive, right now we have enough room under all of them for the foreseeable future.

We feel very good, Vicki.

And then just shifting gears a little bit, you were saying you actually are replacing land in some of the healthier markets. I assume that is Texas. What are some of the areas where are you buying land? And does that mean that you might be, that is land that hasn't dropped, so I guess you are betting that those markets will remain fairly stable where they are?

Repeat the question, Vicki.

Where are you buying land? You said you are buying in the healthier markets.

Well, most of the land purchases today are in markets like in Texas, which has been healthy, and North Carolina, where we really don't have a lot of land options remaining are in the tough markets. We have got very little land options remaining in the Californias or Floridas, et cetera. But I would say --

You are talking about take-downs --

Yes, take-downs. We are not really optioning new properties today. These are just take-downs under existing options.

Okay. So this is not new, you are going in with existing arrangements that you already have and possibly renegotiating prices?

What we probably have in most of these is a model home park already there, and it is the second section of land, or the next few lots that we are taking down, that is what we are doing.

Okay. Well, thank you.

You are welcome.

Your next question comes from the line of Gary Freeman from GEM Realty Capital. Please proceed.

Thanks for the opportunity, guys. Can you give us your perspective on how the securing of the land might impact your operational flexibility going forward?

I don't think it is really going to affect our operational, it is administratively cumbersome, and it takes some time, but it really doesn't hamper flexibility from an operating perspective.

Does the bank need to provide sort of waivers, or sign off on lot releases, that kind of thing?

I mean as we close a house, obviously they have to release the lien.

I mean there are mechanical parts of it that do require some administrative planning, but in no way do we feel it is going to hamper our operations at all.

Are there release prices in terms of lot sales?

No. As long as we have something slated over the next say 45 days to be sold and/or leased in the ordinary course of business, and we are not in default on the agreement, and is a pretty standardized process for releasing the mortgages. I think you have to keep in mind that the vast majority of builders across the country operate with secured credit facilities at all times. So it is not something that necessarily is a brand new concept.

No, I understand that. But a lot of those builders are also going through some tough times. So I am just trying to understand how tough it can become?

Well, they're not, we are still a big company with, we are not putting mortgages in place on all of our communities. Those that we are putting it in place for, it is going to be a fairly flexible arrangement for releasing mortgages to not impinge on our business, the lenders were not looking to be in any way restrictive on our ability to deliver and sell homes.

Got you. On another point, I might have missed this or misheard this, but were you actually talking about raising prices now versus last fall? I just want to try to understand that point a little better.

No. What we did say was that immediately after the Deal of the Century, where we lowered prices for that 4-day event, or 3-day event, we raised prices right back to where they were just prior to the event.

And now, relative to back then is the same, better, worse?

Well, it is higher than it was during that 3-day event, but I would say in general it has drifted a little lower than it was immediately afterwards, which is part of the reason why you saw some deterioration in margin.

That is what I figured. And I just wanted to clarify that. Thank you.

Before the next question is asked, although Vicki's question was under our indentures, how much security can we provide, and the answer is 100%, and there is no restriction in the indentures for providing 100% security of all of our collateral, there is a restriction on how much we can draw of that secured amount, and it is limited to 40% of our assets, we have a big cushion even on that, to fully draw the revolver. But I just wanted to clarify that point.

Your next question comes from the line of Beth [Armstrong], AllianceBearstein. Please proceed.

Yes, good afternoon. I guess I am surprised to hear the earlier comments that only about half of the homes in Deal of the Century have closed. And given that we are five months away from that, and I'm just curious if there is a conclusion, or a take-away, because these were spec homes as we understood?

Interestingly, we expected more of the activity to be in spec homes. And typically spec homes got a greater incentive. But to our surprise, about half of the sales were to-be-built homes. And in those cases, they had to finalize their house, they had to finalize the option selections on the house, we will to get the permits on them, and then start construction. And that is why it takes longer to deliver those.

If you look at it in terms of gross sales that we did during that weekend, about a third, a little less than a third have canceled. A third, we have closed. And a third are left to be closed, for the reasons there I just pointed out.

I guess the can rate might actually end up being not much better than the average.

Yes.

That might be true.

I think that is right.

The second question was, on the credit agreement, a popular question I guess today, I guess should we expect an 8-K filed soon that will have that, like you have done in the past to the normal course of business, and just give us the credit agreement?

I think at some point we are required to file that publicly, it won't be in the too distant future, whether it will be by an 8-K or some other vehicle, I'm not sure, but it will be filed at some point.

So we will be able to get the details then?

Yes.

Okay. Thank you very much.

Once again, ladies and gentlemen, as a reminder, please limit your questions to one and one follow-up. Your next question comes from the line of Keith Wiley from Goldman Sachs. Please proceed.

Yes, and just to confirm one more time, there is 306 million available then on your revolver, that can be drawn without triggering this 40% of assets negative pledge clause?

Correct.

Absolutely. There is plenty of room to draw that full amount.

Great. And then you talked about forming a joint venture to buy land using other people's capital. Would you also have to contribute 50% of the capital to that joint venture? Or would you try and just contribute your expertise, or --?

Typically, on our joint ventures, and our plan would be the same here, #1, we employ low leverage in our joint ventures, with no recourse and no guarantees. In the past, that means we have had leverage of 50% or below, and as we mentioned, our debt to cap right now on our joint ventures is actually in the 40%, or 42%, or 45% range. So about half or even less would come from the debt side.

And then as has also been the case on our joint ventures, we would put in somewhere between 10 and 20% of the total capital, of the total equity, which again is only half of the total amount, so let's say it was 10% of the equity, it would require about 5% of the total capital requirement.

And I may add that what we are interested in, and in discussions about right now, is not just a joint venture to purchase land, but like our other joint ventures, we have maybe about a dozen, it is not a huge factor in our Company, but it is something we have experience in, and we like our experience so far, but the joint ventures we are considering are to go all the way through the vertical and the building, and that is where we feel we get the best returns.

Our returns, in spite of the fact that we may only be putting up 10% of the equity, or 5% of the total capital, our returns will be disproportionate, hopefully tremendously disproportionate, based on what the IRRs are, and the performance, if we can hit our pro formas. So that is why we are so intrigued by this opportunity.

Okay. Thanks.

Your next question comes from the line of [Clifford Foneson] from UBS. Please proceed.

Hi, guys. And thanks for taking my question. Just a couple of housekeeping items. The first one was I think you gave the option deposits and associated expenses as $143 million. What portion of that was funded with cash, and what portion of that is funded with LCs?

Hold on a second. We are looking it up. 88 million was cash. And 55 million was letters of credit.

Got it. Thanks. And then another sort of similar question, can you give me kind of the amount of your expected tax receivables, tax refunds you would expect to get back later this year? And then also, is that included in your $100 million plus cash flow projection, or is that something you are kind of considering outside of that?

I don't think we have actually made a projection on that number. I am not sure I can tell you exactly what it is.

I know there is a lot of interest in cash flow in general. And as I mentioned, we just have so much of our business as has traditionally been the case, weighted toward the back half of the year. So we are just trying to hold off getting more specific than greater than $100 million, until we have a little more information about the full year.

Sure. All right. Well, thank you very much.

Your next question comes from the line of [Tim Moway] from BlackRock. Please proceed sir.

Can I get a little bit more color on the markets in Florida? And then more specifically, you mentioned the Fort Myers/Cape Coral, what were those sales in comparison to historical sales, and what would you attribute that to?

Okay. Well, Fort Myers just it continues to be a dismal market. And we are not currently marketing any new construction there right now. We have got some amount of speculative homes. Not a lot. And that is all we are marketing at this point. To be honest, the sales price today is really less than the replacement cost, so it just doesn't make sense to do new construction.

We have got to wait until the huge amount of excess inventory in that market clears. It is probably one of the worst markets in terms of excess inventory in the country. That being said, our position, well really, most of the Florida markets are challenged. Southeast Florida is also challenged although we have very little activity and investment in that marketplace. And then the last two markets where we are active are in Tampa and Orlando, which are clearly soft, but not nearly as bad as the southern markets of Fort Myers, and the Southeast.

The 1,345 closings that you had in Fort Myers, how does that compare historically?

It is much higher than normal, and again, we have tried to explain it in the last several conference calls, including today, that it was a very unusual situation, that basically we determined we had no ongoing involvement with those homes, and many of those homes were finished last summer, but we had ongoing involvement.

So for GAAP purposes we couldn't tag them as a delivery, we determined on those 1,345, or whatever the exact number was, that we no longer have any ongoing involvement, so all of them closed in a single quarter, so I don't think you should read anything into what is happening in the market at Fort Myers by the fact that we, for accounting purposes, were able to designate those as delivered homes.

Got it. Thank you.

By the way, the remaining lots there, I guess this answers an earlier question, the remaining lots there are effectively mothballed, since we are not building new lots. And they have all been impaired substantially as well, which answers another part of the question there as well.

And finally, if this helps you in where you are going with it, we only have a few hundred homes in backlog remaining in Fort Myers, plus maybe 30 or 40 speculative homes, and since we are not currently selling new construction, obviously that is the maximum amount of new deliveries you can expect in the near future.

Thank you.

Your next question comes from the line of Michael Rehaut from JPMorgan. Please proceed.

Hi, thanks. Just a quick question on that 44 million of reversals in the gross margin. How much of that, and this might be tough to answer, but if you have a sense, how much of that, could we think about being related to the Fort Myers closings, versus the other parts of your operations?

16 million, Fort Myers.

Great. Thanks very much.

You bet.

Your next question comes from the line of Beth Armstrong from AllianceBernstein. Please proceed.

Good afternoon again. Just on the Fort Myers, I know the margins were quite low, from a working capital perspective, did that lead to a traditional release of working capital and cash from those closings?

No. And the reason was, is that again, I will explain it again, and I know this is not the way most markets do it, but we have done our best to try to repeatedly explain this, including when we initially purchased the Fort Myers acquisition back in August '05, but they do business differently in Fort Myers, in terms of our operation, in terms of the customer comes into a sales center, they will buy a lot from us, when they locate a lot that we control, they will purchase it from us, by getting a construction loan from a third party lender. The lender initially will fund the purchase of the lot. And then they will enter into a contract with us to build the home.

As we build the home, we get construction draws as we complete certain stages of the house from the construction lender. The customer took the loan out, not the company. So therefore, the cash for these homes, we have been getting, as we were completing the homes, virtually no cash came in, as we closed the homes in the first quarter of '08, if you understand what I said.

Completely. And that is okay. And basically, the improvement in the cash flow is largely on the land development side. Not because of the increase of the --

I mean it has nothing to do with Fort Myers.

Right. Globally.

Yes, globally, we are purchasing generally less land than we are delivering. So we are getting cash flow as we deliver out houses.

Great. Thank you.

At this time, I would now like to turn the call back over to management for closing remarks.

Great. Well, thank you very much. We are in a challenging time. Hopefully some of the actions that the Fed and other governmental agencies have taken will help stimulate the economy.

And as I said, I know it is difficult to see any bright light in this housing picture. We have seen these kind of situations before, and eventually this market too shall turn, and we will have a whole different environment, with some pent-up demand, with a lot less competition, and get back to normal operating margins and growth.

Thank you very much. We look forward to giving you an update next quarter.

This concludes our conference call for today. Thank you for your participation. Have a nice day.